Budgeting Is a Dynamic Process That Ties Together Goals, Plans, Decision Making, and Employee Performance Evaluation Essay

490 WordsMay 20, 20152 Pages
PROFIT PLANNING AND BUDGETING Overall Organization Plan consists of 1. organizational goals, broad objectives management establishes and company employees work to achieve 2. the strategic long-range profit plan, Strategic plans discuss the major capital investments required to maintain present facilities, increase capacity, diversify products and/or processes, and develop particular markets. 3. the master budget/static budget (tactical short-range profit plan). Budgeting is a dynamic process that ties together goals, plans, decision making, and employee performance evaluation Benchmarking is the continuous process of measuring products, services, or activities against competitors’ performances. 4 types of responsibility centers 1. Cost Centers (costs) 2. Revenue Centers (revenues) 3. Profit Centers (costs, revenues) 4. Investment Centers (costs, revenues, assets) Participative Budgeting Or Grassroots Budgeting: use of inputs from lower- and middle-management employees. 1. time consuming ( - ) 2. enhances employee motivation and acceptance of goals (+) 3. it provides information that enables employees to associate rewards and penalties with performance (+) 4. can also yield information that employees know, but managers do not (+) FLEXIBLE BUDGETS shows the expected relation between costs and volume 1. A fixed cost expected to be incurred regardless of the level of activity. 2. A variable cost per unit of activity. Variable costs change in total as the level of activity changes. COST HIERARCHIES 1. Unit-level activities: direct materials, direct labor, and energy to run the machines. 2. Batch-level activities: machine setups and quality inspections for specific batches of products. 3. Product-level activities: design work, supervision, and advertising that are specific to each type of

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